June 18, 2018 / 6:46 AM / a month ago

RPT-GRAPHIC-Take Five: World markets themes for the week ahead

 (Repeats Friday's story without changes)
    June 15 (Reuters) - Following are five big themes likely to
dominate thinking of investors and traders in the coming week
and the Reuters stories related to them.

    1/KILLING QE SOFTLY
    A three-day ECB forum on central banking kicks off on Monday
in Sintra, Portugal, but under a very different backdrop to last
year's summit. The ECB has warned markets it will end its
bond-buying programme by the end of the year, but it has also
pledged to keep rates low possibly until after summer 2019. That
has cheered bond and stock markets no end, but less so the euro.
    Rewind to a year ago when ECB chief Mario Draghi told the
folks gathered at Sintra that deflationary forces had been
replaced by inflationary ones, putting markets on alert for
tweaks in the ultra-loose policy.
    Yet with the end of ECB QE now in sight, a taper tantrum
along the lines of last year's appears to have been avoided.
Italian bonds have just enjoyed their best week since September
2012. But Sintra speakers will still be listened to because any
signs of a European growth setback could complicate the QE exit
path. Next Friday's "flash" euro zone PMI data for June may also
provide some insight on this front.
    More generally, Sintra is a big central banking shindig -- 
alongside Draghi will be the Bank of Japan's Kuroda and the U.S.
Federal Reserve's Jerome Powell. All three have had their moment
in the spotlight in the past week at their central bank
meetings. But another big-name governor -- the Bank of England's
Mark Carney -- is not scheduled to speak. His bank holds a
policy meeting next Thursday, though it is not expected to
change interest rates.
    
ECB to end bond buying but pushes out first rate hike
            
GLOBAL MARKETS-Euro tumbles as ECB vows to keep rates down
            
Euro zone inflation already at ECB target - Nowotny  
                
    
    2/NO TURKISH DELIGHT
    Several things are complicating life for Turkey's Tayyip
Erdogan before the June 24 elections. Hoping to use a beefed-up
presidency to tighten his grip on the economy and monetary
policy, Erdogan is finding he may not win in the first round
after all. What's more, the AK party could even lose its
parliamentary majority.
    Second, the lira is heading rapidly back to record lows
despite 425 bps in interest rate rises. With the Fed propelling
the dollar higher, the lira's woes might continue. Its weakness
will certainly exacerbate double-digit inflation. On economic
growth -- which Erdogan touts as one of the triumphs of his
15-year tenure -- there are warnings. 
    Data shows Turkish growth running at 7.4 percent, making it
one of the world's fastest-growing economies. But borrowing
costs have soared, with the government paying almost 16 percent
for 10-year cash in local bond markets, up 500 bps since the end
of 2017.
    That could hint at a sharp slowdown because the growth
bonanza hinges largely on credit, which is expanding around 20
percent year-on-year. Indeed, Turkey's highly indebted companies
and banks may already have run into trouble. For Erdogan, a
self-declared "enemy of interest rates", it could mean accepting
more rate rises and slower growth. First though, he needs to win
the election -- at least in the second round.

Poll shows support for Turkey's Erdogan eroding, vote going to
second round             
TABLE-Polls for Turkey's June 24 presidential and parliamentary
elections             
Turkish economy booms in Q1, boosting Erdogan ahead of elections
            
        
    3/PUMP IT UP 
    OPEC and its oil allies meet in Vienna on Friday and
Saturday next week to review their production agreement. U.S.
President Donald Trump has again been blaming the group for
rising oil prices - they are up almost 60 percent over the last
year - so the political pressure is on to pump more. 
    The big producers are divided though. While Russia is
pushing for a significant output hike, Saudi Arabia favours a
modest one. Others like Iran, Iraq and Venezuela want no change
at all.
    Most oil watchers do expect an increase however, before the
end of the year. Negotiations should therefore centre on the
scale, timing and phasing of any output boost. Also key will be
whether it is agreed by the entire group or implemented by Saudi
Arabia and Russia without wider backing.
    
OPEC and allies could hike output gradually from July - Russia
            
Saudi's Falih expects 'reasonable and moderate' oil agreement
next week             
COLUMN-Higher oil prices set to moderate consumption growth:
Kemp             
    
    4/SUBMERGING MARKETS    
    Brazil, Mexico, Taiwan, Philippines, Thailand and Hungary
all have central bank meetings next week and with the dollar
crashing through emerging market currencies like a wrecking ball
right now, what the banks do and what they say will be
important.
    Reuters polls show they are all expected to hold fire for
now although there is an outside chance that Mexico and the
Philippines could pull a surprise hikes. That means it will
mostly be about the rhetoric and who might be preparing to move.
    Brazil's markets are pricing 2.5 percentage points worth of
hikes between now and this time next year, and Mexico's see
around 75 basis points. Thailand and Taiwan may point to one or
two hikes later in the year, and even Hungary's central bank is
expected to ditch its dovish tones in the wake of a sharp fall
in the forint. 
    
FACTBOX-Emerging markets that are hiking interest rates
            
POLL-Hungary central bank seen holding fire as ultra-loose
stance is tested              
EMERGING MARKETS-Currencies in the cross-hairs as Fed hike looms
            
    
    5/BANKS BIG AND SMALL 
    In June 2017, when U.S. banks cleared the Federal Reserve's
annual stress test, their shares surged as the results unleashed
a massive round of stock buybacks and dividend increases. Don't
look for the same outcome next week when the 2018 vintage are
released.
    The largest U.S. banks have notably underperformed their
smaller, regional rivals so far in 2018 and even if some do get
more cushion to increase their capital return programs, few
analysts believe that will be enough to put them back in the
lead.
    A flattening yield curve and underwhelming loan growth are
among the big culprits weighing on the performance of large
banks, and that doesn't look like it's changing anytime soon. 
    The latest Fed data on commercial and industrial loan growth
shows smaller banks holding a greater-than-4-percentage-point
lead over large banks in that key lending category. Small bank
C&I loan growth is up 6.7 percent year over year, while for the
biggest banks it is just 2.4 percent. 
    And the Treasury yield curve - a key indicator of bank net
interest margins - has flattened further since the Fed's latest
rate hike. The spread between 2-year and 10-year Treasury yields
is below 40 basis points and the narrowest in nearly 11 years.  
    

    
 (Reporting by Sujata Rao, Marc Jones, Dhara Ranasinghe, Marius
Zaharia, John Kemp, Dan Burns
Editing by Hugh Lawson)
  
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